Good day, ladies and gentlemen, and welcome to the Blackstone Mortgage Trust Second Quarter 2015 Earnings Conference Call. My name is Derrick. And I will be your operator for today. At this time, all participants are in a listen-only mode. We shall facilitate a question-and-answer session at the end of the conference. [Operator Instructions] I would now like to turn the conference over to Mr. Weston Tucker, Head of Investor Relations. Please proceed.

Great. Thanks, Derrick. Good morning and welcome to Blackstone Mortgage Trust's second quarter 2015 conference call. I'm joined today by Steve Plavin, President and CEO; Mike Nash, Executive Chairman; Paul Quinlan, CFO; Doug Armer, Treasurer and Head of Capital Markets; and Tony Marone, Principal Accounting Officer. Last night we filed our Form 10-Q and issued a press release with a presentation of our results, which hopefully you've all had some time to review. I'd like to remind everyone that today's call may include forward-looking statements, which by their nature are uncertain and outside of the company's control. Actual results may differ materially. For discussion of some of the risks that could affect the company's results, please see the Risk Factor Section of our most recent Form 10-K and subsequent Form 10-Qs. We do not undertake any duty to update forward-looking statements. We will refer to certain non-GAAP measures on this call. For reconciliations to GAAP, you should refer to the press release and to our second quarter Form 10-Q, each of which have been posted to our Web site and have been filed with the SEC. This audio cast is copyrighted material of Blackstone Mortgage Trust and may not be duplicated without our consent. So quick recap of our results before turning things over to Steve. We reported core earnings per share of $0.38 for the second quarter, which was down versus the prior quarter as expected due primarily to transaction expenses related to the GE acquisition which Paul will discuss in more detail. These expenses were probably offset by greater net interest income from the continued growth of our loan origination portfolio. A few weeks ago, we paid a dividend of $0.52 per share with respect to the second quarter. If you have questions following today's call, you can reach out to me or Doug directly. And with that, I will now turn things over to Steve.

Thanks Watson, and good morning, everyone. Every quarter, I emphasize the competitive advantage of managing BXMT from the Blackstone real estate platform at no time this had been more evident. We really had a great quarter. During the quarter we closed 77 loans, $4.9 billion acquisition of the GE loan portfolio. The opportunity to make this investment was proprietary enough market, the product of a long standing relationship and history of successful transactions between GE and Blackstone. GE knew that Blackstone had the global deal teams to access to capital necessaries the deal as well as the track record to bring all the three sources to there to complete large transactions. Blackstone's unique ability to quickly independently commit to a $23 billion comprehensive transaction provided BXMT the opportunity to make its acquisition. We previously announced that we anticipated closing a portion of the GE portfolio in the third quarter. The loan to acquire four currencies and many requires third party consents to the transfer to BXMT. That timing would have made the fourth quarter the first to reflect the full earnings power of the GE transaction. I am very pleased to report that all of the GE loan acquisitions were completed in Q2. The result of a monumental effort by the entire Blackstone real estate debt strategies team and that the Q3 results will benefit from the full impact of the GE deal. To fund the GE portfolio, we negotiated and closed a $4.2 billion term and currency match financing with Wells Fargo. The financing included a component that they listed fully debt finance the near-term repayments expected in the GE portfolio reducing the equity required to close the acquisition. The magnitude of that commitment reflects the extraordinary relationship that we have with Wells. They were fantastic partners throughout and…

Thank you, Steve, and good morning, everyone. Steve outlined in his remarks the superb execution of both the GE portfolio acquisition and our loan origination business in the second quarter. I will highlight how this execution translated into better than expected results for the quarter. Our expectations for heightened profitability in the second half of the year and sustainable earnings at the high-end of the range we laid out at the time of the GE portfolio acquisition. Loan fundings totaled $6.1 billion this quarter. This activity was partially funded by $391 million of repayments resulting in net fundings of $5.7 billion which more than doubled our loan portfolio to over $10 billion. We financed this activity with the $4.2 billion GE portfolio acquisition facility. Our revolving credit facilities and $754 million of non-consolidated senior interests bringing total credit capacity to $10 billion. We closed the GE portfolio acquisition more quickly than we expected helping to produce core earnings of $0.38 per share despite the fact that we issued new equity early in the quarter in advance of the GE loan closings to fund the acquisition. This quarter's core earnings were also impacted by the recognition of a total of $9 million or $0.11 per share of transaction expenses. These were lower than expected due to tight management of legal and appraisal costs by our origination legal and asset management teams. In terms of recurring expenses, management fees were $8.1 million and core G&A was $1.3 million. Book value increased $1.73 in the quarter to $26.60 per share up 7% driven largely by the two accretive equity offerings. We also recognized an unrealized gain of $0.13 per share through OCI from the remeasurement of our net investments in loans denominated in foreign currencies. We ended [audio gap] little bit on BXMT's…

[Operator Instructions] Our first question will be from the line of Dan Altscher, FBR Capital Market.

Thanks, and good morning, everyone. Paul, I appreciate your comments around the high-end of the range of GE on a normalized basis, but you and Steve both made some very distinct comments around core earnings growth, I guess in the third and fourth quarter being on an elevated basis, I think we generally will have that in our models, but can you may be quantify a little bit more as to maybe what you mean just kind of make sure we are all kind of crossing the Ts and down the ice around that?

Dan, hey, it's Doug here. I think we won't be giving guidance as to what earnings would be in the third and fourth quarter, but we would draw your attention to is, what we have disclosed as to what's in place as of June 30. So you can – you and shareholders can look at the ROI that we have put in place during the second quarter. And draw your own conclusions about the dynamics of those investments playing out over the next several quarters and how they will be replaced with new investments from our ongoing direct origination business.

Okay. Thanks. I think that's good. Maybe just in terms of the originations in the quarter that were outside of GE, can you give a color on – I think Steve mentioned it's very diversified across property type. And maybe to add more color as to what they look like whether ROI basis or LTV basis or maybe anything particular with maybe construction and development oriented or is it all just general more transitional in nature?

It's actually a quite a broad mix of originations during the quarter. We financed one large retail property that was a substantial amount of the total that was – it was a construction element that was primarily a refinancing. We had a large New York City office building in the mix a couple of hotels, one in the DC area, one in Hawaii, one office building that was transitional in the DC area. So I think a broad and representative mix of what we have been originating all along sort of a focus on large transactions in major markets.

Okay. That works. I did want, [sensitive] [ph] to the kind of first quarter that we are seeing maybe on a loan-by-loan basis some of the details of the GE portfolio that you disclosed. Also we know there is a substantial amount of exposure to manufactured housing and I think Steve in your comments you talked about being a stable asset group. I was just wondering though is, are the loans that you have there – again, a little bit more transitional and nature of those properties will be more transitional in nature or these actually stabilized properties that are good occupancies, good NOI growth maybe just in sort of vintage maybe being a little bit older or have maybe higher loan yield on than one might expect?

I think they are primarily stabilized with higher debt yields than in general to debt yield we have in the balance of our portfolio. There maybe a lot of the loans across collateralized pools that's okay for us, pools of facilities. And in some cases there maybe a couple of transitional properties added on to an existing pool of stabilized properties. But in general, the debt yields are high and the assets are stable.

Okay. Got it. And then just one last one for me and I will jump off. Given the huge amount of activity that was done in the second quarter again outside of GE, I'm wondering if you are looking now into July and then to the rest of the quarter. Did some of that activity take away from maybe the third quarter of funding pipeline of new activity or is there just maybe some backfill or future funding commitment we are going to see in the third quarter or just – is it going to be a little bit more of a slower pace. I mean clearly I don't think it can be $1.7 billion in the quarter, but just seasonally are we going to see a little bit of a maybe lower type of quarter?

Hello, Dan. Are you there?

Yes.

Sorry about that. Looks like we had a little bit of a technical blip there, but please go ahead with your next question.

Oh, sorry. Okay. I guess what I was saying is, the second quarter was also a very strong from the direct origination side outside of GE. I was wondering if any of that took away from maybe the third quarter pipeline in terms of funding especially with some seasonality coming in the summer.

Great question. The second quarter was obviously an unusually active quarter for the direct origination pipeline, which was occurring the same time we are focused on the GE deal as well. So it's a great quarter in terms of adding product. We still a good go forward pipeline for Q3 and Q4 not the equal of Q2, but generally consistent with where we have been on a quarterly basis.

Okay. Thanks so much guys.

Thanks Dan.

Thanks Dan.

Your next question will be from the line of Jade Rahmani, KBW.

Thanks for taking my question. Steve, I was wondering if you could give your view on the current cycle where we are, how competitiveness – how competitive it is and if you have seen any borrowers or sponsors change how they are viewing the market given the surge in pricing we are seeing so far this year?

Thanks for that question Jade. I think we are seeing a good competitive market. I think we still feel we are mid-cycle, so not at a dangerous point although obviously we are always cautious and looking for signs that maybe we're entering a danger zone. In general, we're seeing increased demand for properties almost across the board and most asset classes and in most markets. The loan market is getting more competitive and so we're feeling that a little bit, but in general we're able to compete quite favorably against our direct competitors in the market. So I still think we're generally in the sweet spot of the market, but we are moving through the cycle.

Okay. And commercial mortgage REIT stock prices in particular have been volatile as well as other yield oriented sectors including equity REIT. On the lending side have you seen any spread widening perhaps that occurred late in the quarter or so far in the third quarter?

We've seen a little bit of volatility in the CMBS market especially the CMBS market for large floating rate deals. Where will we see that volatility, we always test our spreads a little bit wider to see if there is an opportunity for us to make a little bit more yield on our loans. And I think that we benefit from the market volatility especially in the larger loans. I don't think there has been a fundamental shift, but I do think the environment -- a little bit of volatility is good for us. And so I do think that we have the opportunity to maintain or increase our spreads if the current environment continues.

Okay. I know there is two mezzanine loans which the 10-Q shows were originated in May and June after if those were in connection with the GE portfolio, but can you give any color on those loans and also if -- is that to pull or a place where you'd look to allocate capital?

Yes, sure. That really was how we chose to finance two of the very large loans we originated in the quarter. I made a reference to it in my remarks, I talked about the syndication of senior mortgage interest in two of the loans that we originated, for some of the very large loans rather than financing on our credit facilities we'll syndicate them in the market, we'll sell senior mortgage interests. And if we're doing the transactions in areas where there is high mortgage recording tax like in New York and Florida for example rather than retaining our interest in the loan as a mortgage interest we retain it as mezz. It saves the borrower mortgage recording tax it gives us a very good lien to defend -- if we ever need to. But from a conceptual standpoint, we're still originating loans within the context of senior mortgage interest. In fact one of the deals where we originated -- where we --we're holding mezzanine, the LTV of our position is sub-40%. So I don't think you can -- you shouldn't connect the type of lien that we have with necessarily the LTV or risk profile of the asset it really just relates how we chose to finance it.

Okay. Just a small [indiscernible] question, carried interest, is there any remaining carried interest that is not currently reflected on the balance sheet?

Yes. The carried interest that is remaining is in the other asset section of our balance sheet. And the total amount there is $7.1 million.

Right. So is there anything in addition to that that's not yet shown on the balance sheet?

Yes.

That could come through. Okay.

It's possible that's based on 630 marks, but we don't expect it to be substantial at this point.

Okay. Thanks for taking my questions.

Thanks Jade.

Thanks Jade.

Your next question will be from the line of Steve DeLaney, JMP Securities.

Hey, good morning, everyone, and congratulations on getting GE closed so quickly. I wanted to switch over and talk a little bit about your capital structure in the balance sheet. Liquidity indicates may be as much of $2 billion of additional capacity and that could get you well into the fourth quarter it would seem. I'm curious that if you look at given the $1 billion of common equity raised, you really only have one debt issue your convert, which is owned a 5% or 6% of total capitalization. So I'm curious as you look forward over the next couple of quarters from capital planning, would it be possible that some of the incremental capital you may raise over the next year may be in the form of debt versus incremental common equity?

It's Doug here.

Hi, Doug.

That's a good question. Hi. I think it would be possible, you pointed to the convert as an example. Another example I think of debt funding is a sequential pay advance or the add-on advance that Paul talked about. So with the balance sheet as large it is now and as efficient as it is now. And with our investment activity as strong as it is. I think we have a lot of options open to us in terms of corporate finance tools and different forms of balance sheet leverage. And so we will continue to look at all of those options as we capitalize the business going forward could be high yield, could be convert, could be secured debt, could be term loans, could be revolvers, we will evaluate all of our options going forward and lever the balance as efficiently as possible.

Great. Thanks for that Doug. And in the past when we asked about the CLO market or floating rate CMBS, you generally commented that you got some extremely attractive bank financing and obviously, the Wells facility is even at a lower cost, it appears to me maybe 10 basis points or so cheaper than your bank facility. So should we still sort of think about the securitization market is still something that would likely be down the road for Blackstone?

Yes. I think you are right. I think the securitization market still comes in sort of a distant second compared to what we have been able to achieve in our bilateral credit facility agreements in terms of structure and in terms of pricing. So it's something that we keep an eye on. It's a source of capital and leverage that will factor into the model at some point, but it isn't a focus from the center this year.

Got it.

We do now have – we have over 135 loans now. So when we do hit the – we do chose to tap the securitization market for our balance sheet financing. We are going to be in a very strong position in terms of providing a diverse pool in any kind of execution that we pursue. But, the time being we have better alternatives. But when that alternative improves, we will be a very strong issuer.

Thanks for the comments and congrats on a great quarter.

Thanks Steve.

Thank you.

And our final question will be from the line of Rick Shane, JPMorgan.

Hey, guys. Thanks for taking my questions this morning. It's interesting we have all spent a lot of time thinking about how this impacts the balance sheet and how that impacts the income statement. I love to talk about this a little bit operationally. You have essentially doubled the size of the portfolio and in terms of the number of loans actually more than doubled it. Obviously, with the fee structure you have the resources with Blackstone, you have the resources, I love to talk about what additional resources are being committed within the firm to service this portfolio, how you guys are thinking about that because obviously now that the transaction is closed that's really where the proof is in the pudding lies.

This is a great question Rick. I think the first and most direct thing that we are doing is we are adding to our asset management team. So we have a few new hires already in place and process attracting some more to continue with the asset management of the increased portfolio. I mentioned in my remarks that we are opening a BREDS office in Toronto that's being staffed by a couple of guys that we are hiring from GE, we thought we were very strong, we like that market opportunity there is not a lot of debt like ours available in Canada. We are adding at least one person in Europe and we are looking at selectively adding more origination resources in New York as well. So I do think we will take the opportunity to add people both offensively and also from a management standpoint in terms of the new hire loan account.

Got it. And you actually you bring up an interesting point there probably a lot of folks from GE who not only know the portfolio, but are probably interested [to know what their] [ph] next opportunity as well.

That is true.

Thank you, Steve.

Okay. Thank you, Rick.

Thanks Rick.

At this time, we have no further questions in queue. I would like to turn the call back over to Mr. Weston Tucker for any closing remarks.

Great. Thanks very much for you time this morning and just give me a call, if any follow-up questions.

Thank you.

Ladies and gentlemen that concludes today's conference. We thank you for your participation. You may now disconnect. Have a great day.